Journal · Financce · Debt

Paying off credit cards: avalanche vs snowball, with a worked example

Two proven ways to clear credit card debt, compared with a simple example. Learn which saves more interest and which keeps you motivated.

Goldmend Money
5 min read

Credit card debt is one of the most expensive kinds of borrowing most people have. Card interest rates are usually much higher than personal or housing loans, and interest is charged on the unpaid balance month after month. Paying only the minimum can stretch a modest balance over many years.

If you have more than one card, or a card plus other debts, you need a plan for which to attack first. There are two well-known methods.

First, stop the balance growing

No payoff method works if new spending keeps adding to the balance. Before choosing a strategy:

• Stop using the cards for new purchases, or use them only for what you can clear in full each month.
• Keep paying at least the minimum on every card, so you avoid late fees and damage to your credit record.
• Find a fixed extra amount you can put towards debt each month.

Card rules, minimum payment formulas and interest rates vary by bank and change over time. Check your statement and your bank's terms. Regulators publish consumer guides on card debt that are worth reading, such as MAS in Singapore, Bank Negara Malaysia, Moneysmart in Australia and the CFPB in the USA.

The avalanche method

Pay minimums on everything. Put every extra dollar towards the debt with the highest interest rate. When it is cleared, move that money to the next-highest rate.

• Pro: saves the most interest and usually finishes fastest.
• Con: if the highest-rate debt is also large, it can take a long time to see one disappear.

The snowball method

Pay minimums on everything. Put every extra dollar towards the smallest balance. When it is cleared, roll that payment into the next-smallest.

• Pro: early wins. Clearing a card in a few months feels good and keeps you going.
• Con: you may pay more interest overall.

A worked example

Imagine someone with two cards and S$800 a month to put towards debt in total. These figures are simplified examples, and the interest calculations are rounded.

That leaves S$400 extra each month after minimums.

Avalanche: attack Card B first (18%)

• Card B gets S$700 a month (S$300 minimum + S$400 extra). Card A gets S$100.
• Card B is cleared in about 10 months.
• Card A, now smaller after months of minimums, then gets the full S$800 and clears in one or two more months.
• Total time: about 11 months. Interest paid: roughly S$680.

Snowball: attack Card A first (smaller)

• Card A gets S$500 a month. Card B gets S$300.
• Card A is cleared in 4 to 5 months.
• Card B then gets the full S$800 and clears in about 7 more months.
• Total time: about 11 months. Interest paid: roughly S$720, because the 18% card stayed large for longer.

In this example the difference is small, around S$40, because the two rates are close. With bigger balances or a wider gap in rates, the avalanche saves much more. Either way, the extra S$400 a month does most of the work: paying minimums only would take years.

Which should you choose?

Choose avalanche if you are motivated by numbers and can stay patient. Choose snowball if you have tried before and given up, and need quick wins to stay on track.

The best method is the one you finish. Either is far better than paying minimums only.

Other moves worth checking

• Balance transfer or debt consolidation. Some banks offer lower rates for moving card debt into one plan. Read the fees, the rate after any promotional period, and the lock-in terms carefully.
• Talk to your bank early. If you are struggling, ask about restructuring options. Free or low-cost credit counselling exists in many countries, for example Credit Counselling Singapore, AKPK in Malaysia, the National Debt Helpline in Australia and NFCC member agencies in the USA.
• Watch the minimum trap. On your statement, look for how long minimum payments would take to clear the balance. It is often a sobering number.

Try it in Financce

1. Add each card under More → Accounts as a Credit card. Enter what you owe as a negative balance.
2. Open More → Calculators → Credit card payoff. Enter the balance, rate and monthly payment to see how long until the card is cleared and how much interest you pay.
3. Try different monthly payments to see how much time an extra S$100 saves.
4. Each month, record your card payment as a Transfer from your bank to the card. The card balance moves towards zero.
5. Set a budget for anything you still put on the card, so new spending does not undo the progress.

This article is general information, not financial advice.

Try it in Financce, the Goldmend Money app for everyday money. Get Financce

General information, not financial advice. Figures are examples.

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